Case: Input tax recovery not permitted without VAT invoice to demonstrate that supplier had accounted for output tax on the supply

[2018] EWCA Civ 1515


LJ Henderson, LJ Asplin and Dame Gloster (DBE)

Judgment delivered 29 June 2018

Value added tax — Input tax claim where no VAT invoices held – Supplies incorrectly treated as exempt from VAT by supplier — Whether contractually payment should be treated as inclusive of VAT.

Zipvit Ltd v R & C Commrs [2018] BVC 29


Zipvit sold goods by mail order, it had a contract with Royal Mail for the delivery of goods and advertising material by post. Royal Mail treated the charges for its services as exempt from VAT but, following the decision of the ECJ in Case C-357/07, R (on the application of TNT Post UK Limited) v Revenue and Customs Commissioners, it was determined that Royal Mail’s services should (at least in part) have been subject to VAT.

Following the TNT case, Zipvit submitted a claim for a refund of VAT it had incurred on services supplied by the Royal Mail during the period 31 March 2006 to 30 June 2009, which was rejected by HMRC. Many other businesses made similar claims and Zipvit was chosen as the lead case on this issue. Having lost at the FFT and UT, Zipvit appealed to the Court of Appeal.

There was some dispute between the parties regarding the extent to which Royal Mail’s services were taxable but as this was subject to separate litigation the Court did not consider this. The Court restricted its hearing to the issue of whether, it being agreed that Royal Mail’s services were subject to VAT, Zipvit was entitled to input tax recovery.

The Court considered two issues. As set out in Article 168 of the VAT Directive, taxable persons are entitled to deduct VAT ‘due or paid’ on supplies to them, so the first question the court addressed was whether VAT had been ‘paid’ on the supplies by the Royal Mail. The second question was whether Zipvit had a VAT invoice to support its right to recover any VAT ‘due or paid’.

In relation to the first point, the Court reviewed the available paperwork which set out the contract between Zipvit and Royal Mail in great detail and analysed the way in which consideration is defined in the Principle VAT Directive and VAT Act 1994. The court concluded that, because the contract stated that the agreed price was exclusive of VAT a reference to the CJEU would be needed to establish whether VAT was ‘due or paid’ on the supplies.

However, because of its conclusion on the second issue such a reference was unnecessary.

The court ruled that ‘in the absence of a VAT invoice showing that VAT was charged to Zipvit by Royal Mail’, Zipvit could not recover any input tax (even if that input tax was ‘due and paid’). Although HMRC do have discretion to accept evidence which does not fully comply with the statutory requirements for a VAT invoice, the court found that there was no support in the legislation or case law ‘for the proposition that a right to deduct may be recognised and given effect without production of a VAT invoice showing that the tax in question has been paid by the supplier’.


In a lengthy and complex judgment the court arguably reached the conclusion which was most in keeping with the spirit of the VAT system. A purchaser’s right to VAT recovery is not dependent upon whether a supplier has accounted for the tax, but in this case the supplier had issued invoices which specified that the supply was exempt from VAT, had the contractual right to recover any VAT which was in fact due from the customer and there was no evidence to suggest that the supplier had accounted for VAT.

As stated at para 116 of the judgment “It would be offensive to most people’s sense of fiscal justice if a mechanical accounting exercise were permitted to generate a very substantial input tax credit, in circumstances where (for whatever reason) none of the tax in question has been paid by the supplier”.

For commentary on input tax recovery, see the Indirect Tax Reporter at ¶19-000.

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